WeWork is running out of money
- Dan Primack, author of Axios Pro Rata
WeWork office. Photo: Justin Sullivan/Getty Images
WeWork doesn't have enough money to finish out 2019, and both of its known bailout options are nightmarish.
What we know: Option 1 is to sell control to SoftBank, which enabled former CEO Adam Neumann's worst excesses. Option 2 is to let J.P. Morgan arrange a massive debt package, which could become so onerous that employees may just mail their vested options to Wall Street.
How we got here: The company reported $2.4 billion of cash at the end of June, with a first-half net loss of $904 million. At that pace, it should have been able to survive at least through the middle of 2020. But I'm told that it significantly increased spend in Q3, partially due to the lumpy nature of real estate cap-ex, believing it would be absorbed by $9 billion in proceeds from the IPO and concurrent debt deal.
- One source says that there's probably enough money to get through Thanksgiving, but not to Christmas.
The big picture: The WeWork debacle isn't yet having a tangible impact on most private market prices, despite headlines to the contrary.
Last night I emailed several late-stage VCs, to ask if they're seeing systemic valuation resets. A sampling of replies:
"A lot of talk but no action yet. In my experience, private valuations move slowly so it may be a bit before we see evidence."
"Back in late 2008/early 2009, only months after the financial crisis, pundits predicted valuations would collapse. I recall VC’s telling LP’s it would be a super-buyers market and that LP’s should load up in fill-in-the-blank-VC-fund. Guess what? Valuations, both for great and sort-of-great companies barely budged. Since then, I’ve largely abandoned the conventional thinking that lumps start-ups together into a single group of assets that move up and down together in price/value."
"Not sure there’s been enough time to see if prices are really moving down, but obviously lots of talk about it internally and externally. I’d say on three weeks of data all I’m really seeing is more questions and fewer overnight deals as people dig in a bit more."
"Not systemic. I do think there is more scrutiny for consumer companies (especially ones that are losing money or not real 'tech' companies). SaaS companies are still as strong as ever. Usually the private market lags the public market so maybe it’s coming."
Bonus: Even presidential candidates are chiming in: